M/S. CSR DEVELOPERS PVT. LTD. ,DURGAPUR vs. ACIT, CIR-1, DURGAPUR. , DURGAPUR

The captioned appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre (hereinafter ‘the ld. CIT(A)’) passed u/s 250 of the Income Tax Act, 1961 (hereinafter ‘the Act’), dt. 19/06/2023, for Assessment Year 2016-17.

The sole issue agitated before us is the disallowance u/s 14A of the Act at Rs. 66,83,714/-. Facts in brief are that the assessee is a private limited company and declared loss in the e-return filed for Assessment Year 2016-17 furnished on 15/10/2016 which was subsequently revised and the same was selected for limited scrutiny through CASS followed by validly issuing and serving notice u/s 143(2) and 142(1) of the Act. The ld. Assessing Officer on observing that the assessee had earned exempt income during the year and had made investment in equity shares took note of the submission of the assessee but for want of the details exhibiting disclosing direct nexus Assessment Year: 2016-17 M/s. CSR Developers Pvt. Ltd. 2 between the receipt of interest free funds and the deployment of the same for investments, applied Rule 8D of the Income Tax Rules, 1962 (hereinafter ‘the Rules’) and computed disallowance u/s 14A of the Act at Rs.66,83,714/-. 2.1. Aggrieved, the assessee preferred appeal before the ld. CIT(A) and stated that it had not earned any dividend income from investment and the exempt income earned is from sale of agricultural land. However, the ld. CIT(A) confirmed the action of the Assessing Officer.

Aggrieved, the assessee is now in appeal before this Tribunal.

The ld. Counsel for the assessee vehemently argued referring to the detailed written submissions running into 3 pages along with paper book dt. 20/09/2023 containing 142 pages and another paper book of even date in the form of a petition under Rule 29 of the ITAT Rules, 1963. Crux of the arguments are that the assessee has not earned any exempt income in the form of dividend from investments appearing in the balance sheet and the exempt income is only from agricultural land and even the investment made in the equity shares is in associate concern not fetching any exempt income during the year. On the other hand, the ld. D/R supported the orders of the lower authorities.

We have heard rival contentions and perused the material placed before us. Issue of disallowance u/s 14A of the Act at Rs. 66,83,714/- has been raised by the assessee against the finding of the ld. CIT(A). On perusal of the audited financial statement, we notice Assessment Year: 2016-17 M/s. CSR Developers Pvt. Ltd. 3 that during the year, the assessee has not earned any dividend income from investment in equity shares. It had earned exempt income from sale of agricultural land. As on 31/03/2016, the net block of freehold land is at Rs.2,85,49,612/-, net current investments are at Rs.91,33,78,700/-. Shareholder funds comprising of share capital and reserve and surplus is at Rs.73,56,85,101/-, long term borrowings at Rs.25,50,95,969/- and the interest expenditure is Rs.16,23,176/-. Further we observe that during the year, total expenditure claimed is Rs.24,50,868/- which includes deprecation of Rs.6,44,741/- and interest expenditure at Rs.16,25,176/-. Considering these facts and also the fact that the assessee has not earned any dividend income during the year from the net current investment of Rs.91.34 Crores which is mainly towards investments in equity of associate concerns and also the fact that the exempt income is only from sale of agricultural land, we are of the view that provision of Section 14A of the Act has to be invoked, however, the quantum of disallowance as computed by the ld. Assessing Officer is not correct. 5.1. So far as the disallowance, under Rule 8D(2)(i) is concerned, no specific expenditures is claimed in the books nor the ld. Assessing Officer has pointed out any expnditure. As regards disallowance under Rule 8D(2)(ii) is concerned, amount of interest expenditure claimed during the year at Rs.16,23,176/- has to be apportioned between the investments made in the freehold land and non-current investment since there is no specific detail which could indicate about the interest bearing funds have been applied to make investments in Assessment Year: 2016-17 M/s. CSR Developers Pvt. Ltd. 4 the assets fetching exempt income. The proportionate interest disallowance would come at Rs.47,486/- and the same is hereby confirmed. So far as the disallowance under Rule 8D(2)(iii) is concerned, the same is 0.5% of the investment which in this case is investment in free hold land as the remaining investment is in equity shares of associate concern not giving rise to any exempt income during the year and applying a rate of 0.5% disallowance would come to Rs.1,37,633/-. Therefore, the total disallowance u/s 14A of the Act in the case of the assessee is sustained at Rs.1,83,199/- as against Rs.66,83,714/-. The assessee gets relief of Rs.64,98,515/-. Thus, grounds raised